Dr SOUTHCOTT(12.53 p.m.)
—In the 50 years in which Australia has had a distinctive, independent foreign policy—as the member for Aston (Mr Nugent) said—this is the first white paper which actually sets out our foreign and trade policy framework. In the evolution of Australia's foreign policy, the white paper is significant for detailing that globalisation and the rise of East Asia are likely to be the two most important influences which will affect Australia as it enters the next century. It also notes that, as the centre of gravity of the world's economy shifts from the Atlantic to the Pacific, Australia's future will lie in a successful integration in Asia.

As the Prime Minister (Mr Howard) has stated, this does not mean that we have to choose between our history and our geography, but rather that we must recognise that Australia faces a significant national challenge in engaging with our regional neighbours.

Paul Keating promoted the idea that he was a modern day Vasco da Gama, a modern day Marco Polo, a man who discovered the east—which his predecessors had somehow overlooked. During the last election, he promoted the idea that regional leaders would not deal with John Howard as Prime Minister. Subsequently, successful meetings with Prime Minister Mahathir, President Suharto—on two occasions—President Jiang Zemin of China and Prime Minister Hashimoto have shown that Asian leaders are comfortable dealing with Prime Minister Howard and that Keating's accusations actually ignore the fact that recognising the importance of the Asia-Pacific over the next two decades is not the exclusive preserve of the ALP.

The importance of East Asia is not a new notion. As far back as the 1950s, Richard Casey recognised that Australia's relations with the emerging post-colonial nations in our region would be important to our future. Initiatives such as the Colombo Plan not only assisted developing countries in Asia but changed Australia through the person to person contact they created between young Australian students and their Asian counterparts. The negotiation of the Australia-Japan trade treaty in 1957, the abolition of the White Australia policy under Harold Holt and the recognition of China under Whitlam were all important landmarks in Australia's relations with Asia over the last 50 years.

The future for Australia in the 21st century is as a confident and open nation that accepts the challenges of competing in the international economy and the challenges of engagement in the region. On a strategic, cultural and economic level, engagement with Asia will be critical and will require foresight and flair to be successful. As the economies of ASEAN and North-East Asia continue to grow, and as the programs of military modernisation update the armed forces of East Asia, Australia will need to work hard to maintain its relative influence.

The alternative, a failure to integrate in Asia, a failure to maintain our level of influence as a medium-level power, and retreating to a being a protected and insecure country, just does not bear contemplation. Our goal should be to be a nation in the South Pacific with European traditions, but a country that is comfortable dealing with the different cultures and languages of the Western Pacific rim, and that is able to work in a coalition of shared interests. Our expertise in Asian studies should be expanded, and many young Australians should consider
improving their Asian language skills to improve our business and official links with Asia, and also our understanding of Asia.

The white paper clearly rebuts many of the myths which are being propagated by the member for Oxley (Ms Hanson) with her dangerous brand of xenophobic protectionism. The white paper shows that over the last 10 years, Australia has become a more open economy. Trade in goods and services has increased from 35 per cent of GDP to 40 per cent of GDP, and over 60 per cent of our exports are now sent to East Asia.

The white paper also demonstrates unequivocally that this increase in exports has created jobs, and that those jobs pay more. Surveys in 1995 and 1996 showed that firms which export are increasing employment faster than non-exporters, they are more productive, and they pay better salaries. The paper also shows that since the 1950s, rural commodities have declined as a proportion of our exports as services, manufactures, and non-rural commodities became more important. That has become particularly noticeable over the last 15 years.

As tariff protection has fallen, Australia's elaborately transformed manufactures have increased as firms' competitiveness has increased. For example, cuts in tariffs from 30 per cent in 1987 to around 5 per cent in 1996 have seen medical and scientific equipment increase their exports from $300 million in 1987 to $700 million in 1996.

It is not just Australia that is reducing its tariffs alone in a protected world. Since 1988, most East Asian nations have reduced their tariffs significantly. ASEAN nations have cut their tariffs on a trade weighted basis by about two-thirds between 1988 and 1995.

Professor Peter Drysdale of the ANU has pointed out that 77 per cent of the increase in exports that we have seen over the last 10 years went to East Asia. To quote Professor Drysdale, he said:

Australia sends more of its growth in its exports to the countries of East Asia than does any other country in the world, including any in East Asia itself.

The recent currency and financial market turmoil which has now affected every country in East Asia has raised questions about the ability of East Asia to continue the stunning growth rates of the 1980s and 1990s. On balance, the opinion seems to be that if these nations are able to correct the weaknesses in their financial systems, maintain political stability, in the medium term manage several leadership transitions, and improve their current account deficits and the high levels of debt, then East Asia is likely to continue its high levels of growth.

Dealing with globalisation and maintaining support for policy reforms will be a significant political challenge for all governments in the next century. World trade and investment are growing much faster than the world economy. The white paper correctly identifies `that trade liberalisation and an open economy contribute to economic growth and job creation', which refutes the common notion that tariff protection actually protects jobs and reducing levels of tariffs actually leads to job losses.

Much of the growth in international trade has come in the services sector and that will continue. Services comprise about 21 per cent of world trade now and that is projected to rise to 27 per cent by the year 2010. As a consequence, critical comparative advantages for nations in the 21st century will be an openness to new technology, high levels of education and a culture of innovation.

In an article in the summer 1997 edition of Foreign Policy, Professor Dani Rodrik of Harvard University has tried to make sense of many of the myths that exist about globalisation.
His thesis is that globalisation can improve a nation's overall national income but that in advanced countries this can sometimes be at the expense of a decline in wages of unskilled workers. Professor Rodrik said that `globalisation does not constrain national autonomy nearly as much as popular discussions assume.' In the paper he also highlights the significant political challenge that results from the process of globalisation.

Politicians such as Buchanan in the United States, Zhirinovsky in Russia, Le Pen in France and, in Australia, the member for Hotham (Mr Crean) hand in hand with the member for Oxley, show that opposing globalisation, through a brand of neoprotectionism, can gain some political support. It is actually a much more politically challenging task to go out and sell something notional, which is free trade, against something more concrete and tangible but also harmful, which is protectionism. The article does not minimise the significant dislocation that can occur as a result of globalisation. While the benefits of this process are distributed more evenly, those who pay a cost for freer trade are often clearly found.

The policy challenge is to sell, as this paper does, the benefits for Australia in globalisation and also to make sure that education, training and the social security net can minimise the impact for those who do not prosper in a globalised economy. As Rodrik says:

National policymakers must not retreat behind protectionist walls. Protectionism would be of limited help, and it would create its own social tensions. Policymakers ought instead to complement the external strategy of liberalisation with an internal strategy of compensation, training and social insurance for those groups who are most at risk.

Globalisation will continue to be influential with political, social and economic dimensions. Globalisation means that nations will have to account ultimately for poor fiscal and monetary policy.

One of the lessons from 1997 must be that, when the firestorm was engulfing the equity markets and the currencies of most Asian economies, Australia was only minimally affected. As Paul Kelly highlighted in the Australian of 26 November, `Asia's crisis reveals Australia's assets in terms of its economic fundamentals, its sophisticated financial system and its liberalisation of trade credentials.' The Howard government's lead by turning a $10 billion deficit into a budget surplus over three years helped Australia withstand that Asian turmoil.

The budget turnaround was opposed by Labor but without this improvement in our fiscal position not only would interest rates be higher but it is likely that our equity markets and exchange rate would have come under more pressure. Our low inflation, low mortgage interest rates and successful privatisation of Telstra are underpinned by policies that were opposed by the Australian Labor Party. The implementation of the Wallis inquiry recommendations will build on the reputation of our financial system in the key areas of consumer protection and prudential regulation. Australia has moved from Paul Keating's banana republic of 10 years ago to be a beacon in our region for fiscal prudence and financial sophistication.

In the section of the paper dealing with regional trade agreements I would like to sound a word of caution. There is nothing wrong with regional trade agreements per se. The closer economic relationship with New Zealand and APEC are both examples of regional agreements that Australia belongs to which do not undermine the World Trade Organisation or global free trade. They do not divert trade. However, customs unions or free trade areas which do not offer liberalisation on a most favoured nation basis, and are not open to entry for other nations, are likely to divert trade and actually undermine the principles of multilateral trade liberalisation.

I believe that, while bilateral trade agreements may offer a tangible short-term gain, the underlying principle for Australia's trade policy must be a commitment to multilateral trade liberalisation under the World Trade Organisation and also a commitment to the concept of open regionalism, which was defined by Ross Garnaut and Peter Drysdale at the ANU as embodied in organisations such as APEC, which do offer liberalisation on a most favoured nation basis to non-participants of the regional organisation. The advantage of regional trade agreements may be a more wieldy, more rapid liberalisation, but it is important that they are WTO consistent and do not lead to any sort of trade diversion.

I think the white paper states very clearly and importantly what Australia's priorities will be as we approach the next century. It does offer a framework in a very transparent way to say what Australia will be prioritising in terms of our foreign policy. It is only a framework. It is a framework which we will work within. I commend the paper to the House.